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Tax Law – Recording fringe benefits

This article deals with the compliance requirements upon employers recording fringe benefits adequately. This covers general record keeping as well as more specific topics.

General requirements

The ATO requires all employer entities in respect of which fringe benefits are provided to keep adequate records to allow the ATO to assess FBT liability.

All records must be kept for five years from the relevant date of preparation or the date of the completion of the relevant transactions. The records must show:

  • the taxable value of all fringe benefits provided in respect of each employee;
  • methods used to apportion fringe benefits that are provided to multiple employees; and
  • the allocation of benefits to employees (except excluded benefits).

Employee declarations

In many circumstances employees are required to provide a declaration to their employer in respect of a fringe benefit. For example:

  • if the otherwise deductible rule purports to apply, the employee must make a declaration as to what part of their use of the benefit was otherwise deductible;
  • if the employee incurs fuel expenses in respect of a car fringe benefit, they must declare all details of when and how much was spent; and
  • if the employee receives recurring expense payment benefits (eg telephone rental) they must also make a declaration as to what was reimbursed and the degree to which the amount was otherwise deductible.

Such declarations reduce the compliance burden on the employee. Although they must be obtained by the employer before the relevant FBT return is due, the employer does not have to send them to the ATO. Rather, the declarations must be kept as part of the employer’s tax records.

Log book and odometer records

The requirement for employers to keep log book and odometer records is now a fairly familiar one, thanks to the relative commonness of car fringe benefits and the onerous nature of the requirements.

Only if operating cost method

There are two methods of valuing car fringe benefits: the relatively simple though relatively inaccurate statutory method, and the much more accurate, though much more onerous, operating cost method.

Where the operating cost method is used, log book and odometer records must be kept.

Log book records

Log book records are only kept in a “log book year”, which is normally the first year only when the operating cost method is first used. When four non log book years have passed, the employer is obliged to have another log book year.

The log book must be kept up for a continuous period of normally 12 weeks. The log book must contain the following details for each business journey:

  • the time and date of the commencement and end of the journey;
  • the odometer readings at the start and end of the journey;
  • the distance travelled; and
  • the purpose.

The purpose of each journey must be recorded as more than merely “business” or “miscellaneous” etc. The description must be enough to classify the journey as a business journey.

There is no official format for an FBT log book, but the ATO has published a sample version.

Odometer records

Simultaneously with the log book records, the employer is required to keep an odometer record. Odometer records must also be kept throughout the whole period that the car is being used to provide car fringe benefits.

Note that the official ATO guide to FBT has some ambiguous language as to when odometer records must be kept. To clarify, the odometer records must be kept not just when the log book records are kept but also at all other times.

The odometer record simply records the total kilometres travelled by the car during the FBT year. Since the log book only records the business kilometres travelled, it is clear what the purpose of having two records is; to find out the percentage of use that is not business related.

Travel diaries

Where the fringe benefit provided is for travel for more than five consecutive nights (and, if within Australia, the travel was not exclusively for employment related purposes) then the employee is obliged to keep a travel diary to keep record of what proportion of the travel cost is employment-related, and therefore otherwise deductible to the employee.

This, too, has become a familiar form of record keeping for FBT purposes. Employees have to record all employment related activities, the time and date of commencement, the duration, and the nature of the activity.

Conclusion

If you have concerns about FBT record keeping call LAC Lawyers and we can provide advice and assistance.

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